Concepts Definitions

• Appraisal: An estimate or opinion of the value of a property as of a specific date.

• Market Value: The most probable price a property should bring in a competitive and open market, assuming informed and willing buyers and sellers acting without undue pressure.

• Principle of Change: The economic principle stating that real estate values are constantly in flux due to various social, economic, governmental, and environmental factors; the future, not the past, is of primary importance in valuing a property.

• Principle of Highest and Best Use: The legal and physically possible use of a property that is most likely to generate the greatest return or value over time.

• Principle of Conformity: An appraisal principle stating that property values tend to be maximized when buildings are similar in design, construction, and age within a neighborhood.

• Depreciation: A loss in value of a property, specifically referring to the building structure, not the land.

o Physical Deterioration: The decline in value due to wear and tear, age, or environmental factors. It can be curable (fixable) or incurable.o Functional Obsolescence: A loss of value due to a property’s outdated design, features, or poor interior layout, making it less desirable in modern times.

o Economic Obsolescence (External Obsolescence): A loss of value caused by external factors outside the property’s boundaries, such as a declining neighborhood, increased crime rates, or undesirable nearby land uses.

• Cost Approach to Value: One of the three main appraisal methods, which estimates the property’s value by calculating the cost to replace or reproduce the improvements, deducting accrued depreciation, and then adding the estimated market value of the land.

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